Verrica Pharmaceuticals(VRCA) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements (Unaudited) Verrica Pharmaceuticals reported a narrowed net loss and decreased assets for the nine months ended September 30, 2022, facing going concern Condensed Balance Sheets Total assets decreased to $49.1 million as of September 30, 2022, due to reduced marketable securities and debt repayment Balance Sheet Highlights (in thousands) | Balance Sheet Highlights (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $32,473 | $15,752 | | Marketable securities | $6,981 | $54,602 | | Total current assets | $43,395 | $74,328 | | Total assets | $49,147 | $80,125 | | Liabilities & Equity | | | | Total current liabilities | $3,078 | $46,055 | | Total liabilities | $4,382 | $47,520 | | Total stockholders' equity | $44,765 | $32,605 | Condensed Statements of Operations and Comprehensive Income (Loss) Q3 2022 saw net income and a narrowed nine-month net loss, driven by license revenue and lower expenses Quarterly Operations Summary (in thousands) | Statement of Operations (in thousands) | Q3 2022 | Q3 2021 | 9 Months 2022 | 9 Months 2021 | | :--- | :--- | :--- | :--- | :--- | | License revenue | $8,319 | $— | $8,964 | $12,000 | | Research and development | $2,946 | $3,763 | $9,833 | $12,572 | | General and administrative | $3,925 | $8,005 | $14,216 | $21,866 | | Income (loss) from operations | $1,448 | $(11,768) | $(15,085) | $(22,438) | | Net income (loss) | $83 | $(12,829) | $(18,555) | $(25,540) | | Net income (loss) per share (basic) | $0.00 | $(0.47) | $(0.58) | $(0.95) | Nine-Month Operations Summary (in thousands) | Statement of Operations (in thousands) | Q3 2022 | Q3 2021 | 9 Months 2022 | 9 Months 2021 | | :--- | :--- | :--- | :--- | :--- | | License revenue | $8,319 | $— | $8,964 | $12,000 | | Research and development | $2,946 | $3,763 | $9,833 | $12,572 | | General and administrative | $3,925 | $8,005 | $14,216 | $21,866 | | Income (loss) from operations | $1,448 | $(11,768) | $(15,085) | $(22,438) | | Net income (loss) | $83 | $(12,829) | $(18,555) | $(25,540) | | Net income (loss) per share (basic) | $0.00 | $(0.47) | $(0.58) | $(0.95) | Condensed Statements of Cash Flows Net cash used in operations improved for the nine months ended September 30, 2022, reflecting investing and financing Cash Flow Summary (in thousands) | Cash Flow Summary (in thousands) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(13,696) | $(18,884) | | Net cash provided by (used in) investing activities | $47,287 | $(5,009) | | Net cash (used in) provided by financing activities | $(16,870) | $33,649 | | Net increase in cash and cash equivalents | $16,721 | $9,756 | Notes to Condensed Financial Statements Notes detail liquidity, debt repayment, license agreements, and a class action lawsuit, raising going concern - The company has substantial operating losses and an accumulated deficit of $157.5 million as of September 30, 2022. These factors raise substantial doubt about its ability to continue as a going concern, with current cash sufficient to support operations only into the third quarter of 2023[20][22] - On July 11, 2022, the company voluntarily repaid in full the $43.8 million of debt outstanding under its Loan Agreements, resulting in a $1.4 million loss on debt extinguishment[46] - The company received an $8.0 million milestone payment from its partner Torii Pharmaceutical in Q3 2022 after the first patient was dosed in a Phase 3 trial of VP-102 in Japan[62] - A putative class action complaint was filed against the company and certain executives on June 6, 2022, alleging violations of federal securities laws related to disclosures about manufacturing deficiencies for VP-102[58] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses VP-102 development, regulatory setbacks, financial performance, and liquidity Overview Verrica faced VP-102 regulatory setbacks, advancing its pipeline and reducing workforce - The company received a Complete Response Letter (CRL) for its VP-102 NDA on May 24, 2022, due to deficiencies at a contract manufacturing organization (CMO)[73] - Following FDA feedback, the company has selected a new CMO partner, Piramal Pharma Solutions, and expects to re-submit the NDA for VP-102 in the first quarter of 2023[74] - The company is advancing its pipeline, having dosed the first patient in a Phase 2 trial of VP-LTX-315 for Basal Cell Carcinoma in April 2022[76] - In June 2022, the company implemented a restructuring plan, reducing its workforce by 20 employees and incurring a one-time charge of approximately $0.5 million to streamline operations and reduce costs[83] Results of Operations Q3 2022 saw net income and a narrowed nine-month net loss, driven by license revenue and lower expenses Quarterly Results of Operations (in thousands) | Results of Operations (in thousands) | Q3 2022 | Q3 2021 | Change | | :--- | :--- | :--- | :--- | | License revenue | $8,319 | $— | $8,319 | | Research and development | $2,946 | $3,763 | $(817) | | General and administrative | $3,925 | $8,005 | $(4,080) | | Net income (loss) | $83 | $(12,829) | $12,912 | - The $8.3 million in license revenue for Q3 2022 was primarily due to an $8.0 million milestone payment from Torii[98] Nine-Month Results of Operations (in thousands) | Results of Operations (in thousands) | 9 Months 2022 | 9 Months 2021 | Change | | :--- | :--- | :--- | :--- | | License revenue | $8,964 | $12,000 | $(3,036) | | Research and development | $9,833 | $12,572 | $(2,739) | | General and administrative | $14,216 | $21,866 | $(7,650) | | Net loss | $(18,555) | $(25,540) | $6,985 | - The decrease in G&A expenses for both the three and nine-month periods was primarily due to lower pre-commercial activities for VP-102 and reduced compensation costs from a smaller headcount[100][107] Liquidity and Capital Resources As of September 30, 2022, the company held $39.5 million in cash, having repaid debt and raised equity - The company had cash, cash equivalents, and marketable securities of $39.5 million as of September 30, 2022[111] - In July 2022, the company raised net proceeds of $26.9 million from a follow-on public offering of common stock[112] - The company voluntarily repaid its outstanding debt of approximately $43.8 million in full on July 11, 2022[114] - Existing cash is expected to be sufficient to support planned operations only into the third quarter of 2023, and the company will need substantial additional financing to fund its operations[122][123] Quantitative and Qualitative Disclosures About Market Risks No material changes to market risk disclosures since the 2021 Annual Report on Form 10-K - There have been no material changes to the company's market risk disclosures since the 2021 Annual Report on Form 10-K[127] Controls and Procedures Management concluded disclosure controls were effective as of September 30, 2022, with no material changes - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2022[128] - No material changes to the company's internal control over financial reporting occurred during the quarter ended September 30, 2022[132] PART II. OTHER INFORMATION Legal Proceedings The company faces a class action lawsuit alleging federal securities law violations for VP-102 - A putative class action complaint was filed against the company on June 6, 2022, alleging violations of federal securities laws related to non-disclosure of manufacturing deficiencies for VP-102[133] - The lawsuit seeks unspecified compensatory damages for individuals who acquired the company's securities between May 28, 2021, and May 24, 2022[133] Risk Factors Key risks include uncertain regulatory approval for VP-102 due to CMO deficiencies and funding - A significant risk is the uncertain timing and potential failure of FDA approval for VP-102, following the receipt of a Complete Response Letter (CRL) in May 2022[136] - The CRL was a direct result of deficiencies identified at the company's CMO, Sterling, which was placed on "official action indicated" (OAI) status[136][137] - The company has engaged an alternative CMO, Piramal Pharma Solutions, but there is no assurance that the technology transfer will be successful or that it will prevent further substantial delays and costs[137] - The company's financial position is a key risk, as it has incurred significant losses, expects to continue incurring losses, and will need substantial additional funding to pursue its objectives[139][142] Exhibits This section lists exhibits filed with the quarterly report, including corporate governance and SOX docs Signatures The report is duly signed and authorized by the CEO and CFO on November 7, 2022